Long Ideas for an Upcoming Crash

The largest gripe that I’ve had with Wall Street Analysts is that they lack accountability. They flip-flop around their investment thesis and fundamental analysis of a situation. In my regard, the individual investor has many reasons to completely tune out all the noise that they hear and draw their own conclusions from macro-economic events and their own due diligence of a companies released earnings.

Over the past 400+ articles, I’ve mostly posted my buys and sells, with exact prices. This is to establish accountability and to form a track record. I’ve always said, regardless of how a person finds their stock picks, all that matters is performance in B&W. It doesn’t matter if you employ throwing darts or advanced quant analysis. The best written article and in-depth analysis is worthless if it consistently loses you money in investing.

My approach has always been basic and straightforward. Buy cash rich companies with low debt or entire sectors that have been shorted due to unfavorable market conditions. I know that my own track record is far from perfect, however I have the same conviction and passion for each investment I make even if the last was losing.

In the market, a loss is never a loss until you sell. If you are confident you bought a stock at good value you will be able to sleep well at night and won’t be afraid to buy more at low prices. You never buy more just because the price drops, you buy more because the company continues to be a good value. If the company stops being a good value, you cut your losses and sell, regardless if the price is high or low.

I do see a crash coming and with the same accountability I am going to post my targets as I always have.

My price target for gold is $1,100 by the first quarter of 2009. My top picks continue to be Yamana Gold (AUY) and Barrick Gold (ABX).

My target for silver is $25 by the first quarter of 2009. My top picks continue to be Pan American Silver (PAAS), Silver Wheaton (SLW) and Hecla Mining (HL).

My favorite base metals stock is Lundin Mining (LMC). I’ve written in detail about the stock in the past, so use the search function on my blog. Today the stock is trading in the mid $6 range. I fully expect LMC to break $10, a 50% gain, in the next 6-12 months.

I would like to remind readers that the first time I bought Yamana, Pan American Silver and Silver Wheaton some continued to drop from my purchase price almost 30%. In retrospect, I saw the value in strong earnings and smelled a good value brewing. All of the stocks above returned 40% or greater for me in a matter of months. I see the same opportunity today in precious metals stocks.

It will not be a smooth ride given the volatility in precious metals. Unusual volatility means strong swings in both directions. The farther it falls the faster it will rise as a sector. There are plenty of precious metal stocks, especially juniors and mid-tier producers that are trading as if gold were in the $600-$700 range and silver were in the $12-$14 range. In light of the strong earnings almost the entire sector is undervalued and soon Wall Street will come to realize and report about it. There is real possibility of war between Israel and Iran. There is a real possibility of economic disaster. There is strong threat of inflation. All of these are positive for precious metals.

I am going to start entering positions in July and hopefully 2008 will be another top notch year for myself and fellow Raw Greed readers. Gradual accumulation and diversification is key. A year from now those who have the conviction to buy will be happily rewarded.

Finally, I will share a thought left to me by the former CIO of General Motors Asset Management. I asked him, “is an entrepreneur risky?”. His answer was solidly no. An entrepreneur fully believes in what they are doing or they wouldn’t do it at all, so they are not risk takers. A conservative entrepreneur and those who are fully accountable should be followed carefully. Individual investors are very much mini-entrepreneurs putting their money to good use.

Disclaimer: The author currently holds a long position in Lundin Mining.

Comments

[davcnslt:]

Thanks for the post, I am with you on a couple of your picks and would like your view of SLW's warrant issue. I see it as bullish insofar as what might be management's expectations for rising silver prices. I suspect they are moving to re-fill the war chest for acceleration of acquisitions. Interesting though, how much of a chip off the old block they really are. This is very much like former parent goldcorp. Incidentally, while I understand your subdued rant about indivisdual investors posting here I think for may of us it isn't neccessary. I weigh all I read here, some more meticulously then others. If you stick to your rationale and you have calculated right, all eyes and ears will follow.

2008 Jun 27 06:53 AM

[bruin532:]

Why wait until July seem the breakout has already begun? Also what do you think of CDE is there hope it will recover and finally breakout?

2008 Jun 27 08:00 AM

[dieuwer:]

My price targets for gold and silver by the end of 2008 are $1250 and $25, respectively.
If Bernanke is going to hyperinflate and de DOW "miraculously" rises well above 12,000 then all bets are off and we could easily see $2000 per ouce of gold.

2008 Jun 27 08:20 AM

[GMiki1:]

Dieu, I have the same end-of-the-year targets as you--$1250 and $25-$27.

I'm comfortable with SLW and I hold a lot of juniors. I know they won't be the first to rise, but I'm holding. I've made some money this year though I expected to make more--I think that will come by the end of the year. The ride has been a bumpy one for sure. But what's easy? (Hint: nothing.)

2008 Jun 27 11:15 AM

[Da_Bronx_Guy:]

Andy, Andy, Andy-

What about your recommendation about U.S. Gold (AMEX:UXG)? It certainly did not pan out... Bad call!

2008 Jun 27 11:32 AM

[angefrat:]

I love what you say and agree. I am new at all this, with very little money , but am learning, did and am doing a lot of homework. I just bought 3 shares of GE, I know not much, but as I said, I do not have lot. I am now looking to buy something in the gold and silver mining, and something in gas. I think there will be a drpression, and am looking for things that will make money in it. Thanks for all your words. Any advise will be appreciated. my email is [e-mail]

2008 Jun 27 11:32 AM

[fl57caveman:]

GG & AUY were the best picks i found in the metals, SSRI looked good, but not returning to price levels like PAAS, CDE looks good, but continues to perform like a pig...i like HL much better, but do not have any yet.

i agree on the future of metals, more people are slowly waking up to the fact the economy is not coming back like the liars in the govt & big banks are telling.
got gold& silver?

2008 Jun 27 12:14 PM

[welcome2work:]

Target? what you mean by target is that when you buy?/sell? Gold 1200 target mentioned?

2008 Jun 27 02:48 PM

[Yellowstone:]

I like AUY and have long term holdings. ABX I have always had a problems with, because of their being the King of the Hedgers ( fixed price forward sales ). I prefer GG and AEM. I have been holding HL for some time now, but recently doubled my holdings as some wacko shorts drove the price down to below 8.00. Thanks guys for the fire-sale prices.

2008 Jun 27 05:17 PM

[nova:]

I would like to remind that this is an election year in America.

Consequently, neither political party likes to go to the election having at best a deep recession on their hands. And the Fed and US Treasure are doing their best to support politicians.

But, immediately following the elections, a hell will break loose with interest rates shooting straight up.

The USA can not allow its currency to collapse and being unable to pay for oil and other materials for its basic needs.

2008 Jun 27 05:22 PM

[dieuwer:]

nova, who says there actually will be an election? Perhaps Bush goes mad, declares martial law and nukes Iran.

2008 Jun 27 06:29 PM

[James Lewis:]

Who says the USA has a choice with its currency.
Also it is clearly in the best interest of the USA government to hyper-inflate by printing money. How else are they going to pay their liabilities?

Depreciating the dollar is the best way to increase exports.

No I think depreciating the dollar, hyper-inflating money supply makes perfect sense to the USA. They have no other way out.
If they are smart enough, whiel they are printing money. They may use some it to develop their manufacturing base further to accomodate increased demand in exports because of low dollar. And at the same time stockpile gold, commodities and oil. Rather than giving the banks it to distribute loans to people who can not pay them back like our last cutting cycle.

In the meantime if we are all right in the Gold Bull camp.
We are looking at gold going to 1250 in the very near term.

Bombing Iran would certaintly do the trick.
Cit Group going bankcrupt could work.
Oil going to 175 USD/barrel could get us moving as well.

My view is if we breach the all time high a lot of money will move into Gold. The inflation adjusted high is quite far away and really if the USD index is going down to 55-60. We should breach that even.

Fun Times Ahead

2008 Jun 28 12:38 AM

[Bingo 2:]

Hey dieuwer- Who says Bush will GO mad- He already reached that state years ago.

2008 Jun 28 12:54 PM

[GMiki1:]

Welcome, You buy NOW, and when gold hits $1250 at the end of the year you count your money and chuckle softly. When gold hits $1500 at the end of the first quarter of 2009 you let your eyes pop in a kind of mixed astonishment and horror at what's happening to the U.S. economy. You check your canned good supplies.

2008 Jun 29 01:02 AM

[tashkerra:]

GMiki

What if by chance Bernanke and Paulson have an epiphany and open the Gold window of the Treasury-- allowing gold to be traded in a narrow band and allow gold holders to purchase at huge discounts and erase debt at their pleasure?

2008 Jun 29 07:04 PM

[Dan Schmeidler:]

I like the price target of Gold at $1,100 by Q1_09. I think by then that number will be a bottom and not a ceiling. The Federal Reserve has shown that it has no control over negative sentiments towards tha value of its currency. The markets more than ever or not treating the $US Dollar with much positive considerations of its future value and that is reflected in how the markets are willing to bid up Oil into these high and near ridiculous prices. How much extra dollars must there be lying around to pay for oil at $140 for a little barrel you can put in your garage. And what purpose can gold really have at $1100 an ounce, other than to give its owner some comfort that maybe the gold's value will fare better in the future than the dollars that are circulating around us.

2008 Jun 29 07:08 PM

[Dan Schmeidler:]

An earlier posting here made a very good reference on the ability of this government (and its federal reserve) to turn things around quickly and raising interest rates drastically. But is it really necessary for the government to do that. In other words, are we really going to see those run-ups in interest rates? Maybe the executive bodies, (yes, along with the legislative, etc.) don't really see the need for a federal reserve and believes that this country is self sufficient and self-reliant and that at the end of the day we all know that we don't really need to rely on foreing oil. At least in the long run. I mean, they must think that there are enough alternative energy ideas out there to eventually relieve all ths pressure on energy prices. Maybe they think that all those wonderful innovations in energy are all going to take place here on US soil, and of course, run by more growth obsessed american corporations. If they do believe all that, they better start investing in those areas very quickly.

2008 Jun 29 07:38 PM

[Jake2:]

Thanks, Andy.

2008 Jun 30 01:27 AM

[blink0404:]

Gold target at 1,200... seems a little high but it could happen.

When I'm looking for trends with gold, I watch for silver to peak; when this happens, it's time to sell gold.

Here's an article on the idea with more details:
www.greenfaucet.com/ha...

2008 Jul 02 03:19 PM

[Tom Szabo:]

These are not as much "top" picks as they are safe picks. Yamana? Everybody's favorite yet continues to be "undervalued" for some reason. Barrick--where is growth upside? Pan American--good but the obvious pick in silver along with Silver Wheaton. Hecla--this one has possibilities but again how "special" is this pick?

2008 Jul 04 08:06 AM